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Friday, November 01, 2013

Report: cash-for-clunkers (CARS) program not terribly efficient

by Brian Wolfman

Remember the Obama Administration's early "stimulus" program known as cash-for-clunkers? The Consumer Assistance to Recycle and Save Act of 2009, or CARS, was meant
to encourage people to trade in their gas guzzlers and buy new fuel-efficient cars. You traded in the gas guzzler, and the federal government funded a $3,500 to $4,500 credit toward the new car. And the car dealer was required to scrap the gas guzzler--even if it ran perfectly well--so that it wouldn't continue its
gas-guzzling ways. The idea was that the consumer saved money, new car
purchases increased, and the environment was benefited. Back when the program got started, we posted frequently (and fairly skeptically) about the program's value. (Go, for instance, here, here, here, here, and here.)

Now, a study by Ted Gayer and Emily Parker at the Brookings Institution has found that

The Car Allowance Rebate System (CARS) or “cash for clunkers” program,
launched during the height of the recession with the intention of
stimulating the economy, creating jobs, and reducing emissions, was
actually far more expensive per job created than alternative fiscal
stimulus programs.

The $2.85 billion program provided a short-term boost in vehicle
sales, but the small increase in employment came at a far higher implied
cost per job created ($1.4 million) than other fiscal stimulus
programs, such as increasing unemployment aid, reducing employers’ and
employees' payroll taxes, or allowing the expensing of investment costs.

Total emissions reduction was not substantial because only about half a
percent of all vehicles in the United States were the new, more
energy-efficient CARS vehicles.

The program resulted in a small gasoline reduction equivalent only to about 2 to 8 days’ worth of current usage.

In terms of distributional effects, compared to households that
purchased a new or used vehicle in 2009 without a voucher, CARS program
participants had a higher before-tax income, were older, more likely to
be white, more likely to own a home, and more likely to have a
high-school and a college degree.